Where do I keep my Bitcoins?
You now know how to buy Bitcoins. Via a broker or an exchange. But you also want to keep your Bitcoins somewhere safe. You put valuable items in a safe. Digital money is in your bank account. And Bitcoins? Yes, that’s a good question. And also one that is misunderstood by many people. Have you ever heard of a Bitcoin wallet? You do not store Bitcoin and other cryptocurrencies in a wallet. But how does it work?
To explain this properly, it is important to understand blockchain. If you have not yet read about this, we recommend that you do so before you get started with cryptocurrency. How blockchain works is crucial to explain this. The term wallet actually only makes it all more confusing.
Still, we are going to use the bank account example. There are similarities in how cryptos are stored and how a bank account and debit card work. You also don’t have all the money in your wallet in your wallet. You do have the card that gives access to your money. You can use this to withdraw money via PIN device or via internet banking.
What is a Bitcoin wallet?
A Bitcoin wallet is actually nothing more than your bank card. It contains the information that gives you access to your “Bitcoin account”. This is done by means of codes. Those codes are called keys. There are 2 keys that are used for a Bitcoin wallet. A public key and a private key. You could compare this with an IBAN (public) and a PIN code (private). And your money, or in this case your Bitcoins? These are stored on the blockchain. So you can access it because you have access through your private key. And others know how to pay you via your public key.
Which Bitcoin wallets are there?
Does the above explanation scare you a bit? We can well imagine that. But you’ll find that it doesn’t take long before you understand what it takes to get started with Bitcoin.
Just like you don’t leave a new bicycle on Dam Square with the key open. This is no different with your Bitcoin wallet. So always keep your private key private! To store your Bitcoins safely, you can choose from a number of different wallets.
Online wallet (Hot wallet)
Do you buy Bitcoins through an exchange or a broker? Brokers and exchanges are increasingly offering a solution via their platform. You no longer have to create a Bitcoin wallet yourself. So get started quickly and start trading or trading Bitcoin immediately.
The biggest disadvantage is safety. You depend on the exchange or broker to keep your Bitcoins safe. Is an exchange being attacked by a hacker? Then there is a risk that your coins have been transferred to another account. There is then a risk that you will lose your investment. However, there are parties that compensate their customers for so-called hacks. An example is Binance. The largest crypto exchange has compensated Bitcoin owners for such hacks in the past. So make sure you use a reliable Bitcoin provider!
Software wallet (Hot wallet)
This is a variant of the online Bitcoin wallet. With an online wallet you have access to your cryptocurrency via the exchange. With a software Bitcoin wallet you have this yourself. You use software that you save on your desktop or smartphone
It is more attractive for hackers to attack an exchange than your computer or smartphone. This makes it less likely that you will be attacked. Even though you are a less attractive target than an exchange, you are an easy target. So make sure you use up-to-date software to protect yourself against viruses and malware.
Hardware wallet (Cold wallet)
This is probably the best way to store your Bitcoins. A hardware Bitcoin wallet is a physical device. It is not connected to the internet and therefore (almost) impossible to hack. Do you plan to trade infrequently and keep your Bitcoins for a longer period of time? Then the hardware wallet is the best option.
Never buy a used hardware wallet. Software can be installed on it by hackers or fraudsters. In that case, you will not have the protection you are looking for for your investment.
Paper wallet (Cold wallet)
For the sake of completeness, we call it the paper Bitcoin wallet.
It is the most old-fashioned form within the various wallets. Unfortunately not recommended. Because if you lose your paper Bitcoin wallet, you will also permanently lose your Bitcoins.
What happens if I no longer have access to my Bitcoin wallet?
In many cases that is the biggest fear. No longer access to your Bitcoins, but many hundreds, if not thousands, of euros stored?! What now? Fortunately, you will not immediately lose your Bitcoins.
Earlier we told you about the different keys you have. A public key as a bank account number and a private key as a PIN code. If you go one step further, you could say that there is also a way to get your PIN code back. In Bitcoin land this is called a recovery seed or recovery phrase. This recovery seed contains 12,18 or 24 words. Chosen completely at random. By using these 12, 18 or 24 words you can regain access to your Bitcoin wallet.
Tips to keep your Bitcoins safe
Whatever wallet you use. It is wise to take the security of your Bitcoin and other cryptocurrencies seriously. Criminals are willing to go further and further to steal cryptos. That’s why we recommend the following tips.
- Never share your private key with others!
- Never share your recovery seed with others!
- Are you going to trade? Always use 2FA (2-Factor
- Authentication), read here how you can keep your bitcoin safe while you make your regular trades.
- Do you have more than a few hundred euros in your Bitcoin wallet? Then buy a hardware wallet? Want to know more about the best wallet?
- We can’t say it often enough: Never share your private or recovery keys with others!